India’s gold, England’s gain?

Did you know that Sir Isaac Newton – yes, the same one whose laws of motion and gravity we studied in our high school and college – visited India? And no, he did not come to steal India’s calculus or the law of gravity discovered by the ancient and sage Indian Aryabhata, as many websites have claimed. He came as Master of the Royal Mint, in the early years in the 18th century.

In 1699, Newton was appointed Master of the Royal Mint, responsible for Britain’s coinage and the exchange rate between them, particularly gold and silver. He resigned his academic position at Cambridge University to take the appointment, and stayed in that position till his death in 1727.

In 1702, England was fighting the War of Spanish Succession, allied with France against the Netherlands and Spain. It was a long and costly 13-year war that depleted England’s gold reserves and currency before it ended in 1714. In India, gold was so abundant, its price in the early 18th century fell from 1:10 (the ratio of silver to gold) to 1:9. The ratio in England at that time was 1:15. So, Newton visited India to see if he could buy ‘cheap’ gold to shore up England’s public finances.

It was not the only time that England took gold out of India. In the years between the two World Wars, the internal price for gold was only Rs. 21 per 10 grams in India, while the international price was Rs. 34 per 10 grams, making it profitable to export gold.

In 1931, Britain had gone off the gold standard, and the currency pound sterling depreciated, as did the Indian rupee that was pegged to the sterling. The price of gold was higher in London, so India became an exporter of gold. Indian gold exports between 1931 and 1938 were more than 250 million pounds.

Why did that happen? Indian households were liquidating gold savings to finance consumption, and repay debt. And by doing so, they were facilitating the transfer of liquid resources to England that helped that country manage its trade balances and imports. It certainly alleviated the impact of the Great Depression of 1929. India’s gold helped England in more ways than one, and more than once.